Study now and pay when you have a job

IN­COME-SHAR­ING AGREE­MENTS ARE PAVING THE WAY FOR LESS FOR­TU­NATE STU­DENTS TO GET ON IN LIFE

mmac­u­late in a grey woollen suit, 26-year-old Christo­pher Linares set­tles into a chair in his of­fice near Buck­ing­ham Palace. The grand set­ting feels a long way from his Peru­vian home — and that’s not all that has changed.

Linares works as an in­vest­ment an­a­lyst for a pri­vate eq­uity firm spe­cial­is­ing in min­ing that man­ages multi-bil­lion­dol­lar trans­ac­tions.

But less than three years ago, he was an im­pov­er­ished stu­dent, won­der­ing how to find enough money to pay for the fi­nal year of his univer­sity de­gree in Are­quipa, Peru.

That was where stepped in.

One of a grow­ing num­ber of so­cial en­ter­prises aim­ing to help poorer stu­dents, Lumni found in­vestors to fi­nance Linares’ fi­nal year of study in ex­change for a promised share of his fu­ture in­come.

With­out Lumni, Linares would not have his cur­rent job.

“I’m pretty grate­ful for what they did for me,” he said.

Such in­come-shar­ing agree­ments are paving the way for less for­tu­nate stu­dents to get on in life.

De­spite econ­o­mist Mil­ton Fried­man propos­ing pur­chas­ing a share of some­one’s earn­ing prospects in 1955, the idea has only taken off in this cen­tury, with so­cial en­ter­prises, crowd­fund­ing ini­tia­tives and uni­ver­si­ties now of­fer­ing ac­cess to ed­u­ca­tion in this way.

Lumni was set up in 2002 and of­fers ser­vices in Mex­ico, Colom­bia, Peru, Chile and the US. Lumni

The com­pany aims to make higher ed­u­ca­tion avail­able to stu­dents from low-in­come back­grounds who could not oth­er­wise af­ford to join the lucky few who can pay.

His story is typ­i­cal, given that the an­nual fee at the Univer­sity of Chile is be­tween a third and a sixth of an aver­age an­nual salary of a mid­dle-class fam­ily in the coun­try, ac­cord­ing to a re­port by the World Bank.

Lumni’s stu­dents are as­sessed on their po­ten­tial to com­plete their stud­ies and get a job in their cho­sen field. They must have a sound credit record and be high aca­demic achiev­ers. Lumni makes its money charg­ing ad­min­is­tra­tion fees for its ser­vices.

Felipe Ver­gara, the Colom­bian founder of Lumni, said his en­ter­prise has en­abled 10,000 stu­dents in five coun­tries to gain higher ed­u­ca­tion and get a job dur­ing the last 15 years.

Ver­gara’s own fam­ily was able to pay for his ed­u­ca­tion, and af­ter stints work­ing in Brazil and France, he com­pleted a busi­ness de­gree and joined a blue-chip con­sult­ing com­pany.

“Some of my friends were very bright but didn’t have the means to have higher ed­u­ca­tion,” he said. “I was less bright and I did have the op­por­tu­nity. I felt that this was un­fair.” He found in­vest­ment — Lumni says the in­vestors pre­fer not to be named — to fund a pi­lot with six stu­dents in Chile. All grad­u­ated suc­cess­fully, found jobs, and paid back their debt.

Who ben­e­fits?

Now ev­ery year, 1,500 other stu­dents have the same ex­pe­ri­ence. Stu­dents pay a per­cent­age of the salary they go on to earn, de­pend­ing on the level of in­come.

Suc­cess rates are high, with 97 per cent grad­u­at­ing.

And the rates for de­fault­ing on re­pay­ment are low, with just 2 to 7 per cent of stu­dents in the five coun­tries Lumni cov­ers fail­ing to re­pay.

Ge­off Whitty, chair for Eq­uity in Higher Ed­u­ca­tion at the Univer­sity of New­cas­tle, Aus­tralia, com­pared the scheme to gov­ern­ment loans in Bri­tain and Aus­tralia, which stu­dents start to re­pay once they earn a cer­tain salary.

“In other coun­tries, a pri­vate scheme like this could be a use­ful part of the mix, but it is un­likely to do much to­wards meet­ing the wider chal­lenge of fund­ing mass par­tic­i­pa­tion in higher ed­u­ca­tion,” he said by email.

Some of Lumni’s fun­ders are phi­lan­thropists such as Al­berto Beeck, who founded the epony­mous cen­tre of so­cial im­pact and in­no­va­tion at Wash­ing­ton’s Ge­orge­town Univer­sity.

Oth­ers are im­pact in­vestors — peo­ple who want to see their money do good and get a fi­nan­cial re­turn on their in­vest­ment.

Linares is pay­ing back the money for his ed­u­ca­tion over 23 months and says the scheme has worked well for him.

“In the end, we are a prod­uct. You want your prod­uct to get a job, you want your prod­uct to be work­ing, to be mak­ing money,” he said, sit­ting in his cen­tral Lon­don of­fice.

“It’s giv­ing a lot of peo­ple many more op­por­tu­ni­ties than they would have had.”

Those who sign up with col­lege-fund­ing firm Lumni, started in 2002, pay a per­cent­age of the salary they go on to earn, de­pend­ing on their level of in­come. Suc­cess rates have proven to be high, with 97 per cent grad­u­at­ing.